What will Warren Buffett have to say this year?

Former associate editor and columnist with the Australian Financial Review

There’s always plenty of interest in what Berkshire Hathaway’s chairman Warren Buffett will say at the marathon annual meeting in Omaha, Nebraska, in May, but this year more than a few Australian investors will be watching more closely – as shareholders, as well as avid followers of the Sage of Omaha.

That’s because a growing number of Australians are holding Berkshire shares in their self-managed superannuation funds as part of a notable expansion of their holdings in overseas equities.

According to CommSec’s head of SMSF customers, Marcus Evans, in a survey of SMSF investors for the December 2017 half year, the value of their direct holdings in international stocks grew 27% and their trades in local leading stocks fell from 40% to 34%.

They were sellers of the banks and Telstra and other leaders like Wesfarmers, Woolworths, CSL, Macquarie and BHP. Instead, in an apparent search for growth outside the top companies, they were buying smaller local companies (like A2 Milk, Galaxy Resources, Pilbara Minerals and Lynas Corporation). And they seemed to be going direct, rather than buying exchange traded funds (or ETFs).

Overseas, SMSF buyers went for the most popular tech stocks such as Apple, Google, China’s Alibaba, Facebook¸ Amazon and Tesla. Sandwiched in the top 10 was a gold play (Direxion Daily Junior Gold Index) – plus Berkshire Hathaway class B shares and two of Berkshire’s favourites, Bank of America and Wells Fargo.

No longer is Berkshire a quirky, values-based investor; its takeovers have seen it become the largest US industrial group which is in 6th place in the S&P index, competing with the tech-based leaders. The question now perhaps is whether this marks its change into just another mammoth industrial company, with inevitable, slower growth.

So a few shareholders will be keen to get more clues about the future of Berkshire when probably more than 40,000 of them make the pilgrimage to its Omaha headquarters for the AGM on May 5. There’ll be plenty of opportunity since, in his letter to shareholders, Buffett says he expects perhaps 50 to 60 questions over five hours (with a lunch break). The only restrictions are a limit of one question per speaker and no quizzing Buffett and vice chairman Charlie Munger on what or why they are buying and selling.

There also may be interest in Buffett’s view of President Donald Trump after transcripts of comments by Buffett resurfaced more than 25 years ago from a Q and A exchange between Buffet and students at Notre Dame university. Buffett used Trump’s cavalier approach to borrowing to illustrate the dangers of leverage, citing Trump’s ill-fated investment into casinos.

The Berkshire chairman told students in a Q and A session, that Trump overpaid for properties by using borrowings. “He was terrific at borrowing money,” Buffett said, adding “if you look at his assets and what he paid for them and what he borrowed to get them, there was never any real equity.” Trump failed because he “simply got infatuated with how much money he could borrow and he did not give enough thought to how much money he could pay back.”

Berkshire shareholders probably won’t need reminding of the evils of leverage: Buffett has long warned about borrowing – especially on shares. He repeated this in his latest annual letter in February, saying it was insane to risk what you have for something you desire but don’t really need.

Rather, he continued to emphasise financial prudence. Since the scare from the 2008-2009 meltdown, Berkshire has more than doubled its balance sheet and its earnings potential, with the chairman calling it the ”Gibraltar of American business.”

Buffett reassured shareholders the chance of Berkshire running into financial problems was essentially zero. “We will always be prepared for the thousand-year flood; in fact, if it occurs we will be selling life jackets to the unprepared.”

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